Saturday, May 18, 2013

Subsidized Hotels

Construction is set to begin this coming spring on a hotel near Milwaukee's Mitchell International Airport after government officials in the area spent five years struggling to get a private developer interested in the project.

What tipped the balance? Officials in the small Milwaukee suburb of Oak Creek, Wis., came up with a $2.75 million tax break for the developer, Salita Development LLC...

Still, these hotels don't always perform well and they often generate criticism. For example, Greg Marcus, chief executive of Milwaukee-based Marcus Corp., is concerned that the new airport hotel and other such subsidized projects around the country will drain business from his 20 hotels, including his three in Milwaukee. The city's hotel market faces a 24% increase in its room count due to projects expected to complete construction over the next three years, according to Robert W. Baird & Co.

Mr. Marcus also points out that subsidized hotels carry less debt and thus can undercut their competitors' nightly rates. "When you build something for reasons other than supply and demand, you create imbalances in the system," he said. "That's why our government needs to be so careful with what they do" in subsidizing hotel development.